Despite many favorable conditions in 2013, M&A never took off in the middle market the way dealmakers hoped. While the last three months of the year generated a lot of activity, they didn't make up for the previous nine months. Deal volume for the year proved to be the second lowest in 10 years, above only post-collapse 2009.

The beginning of the year was particularly frustrating, coming on the heels of an active fourth quarter of 2012, which had been accelerated by tax considerations. January suffered by comparison, and M&A practitioners hoped the year would pick up. But instead, it was just the beginning of the slump. Ultimately, January turned out to be one of the better months. A slight uptick in closed deals occurred in July, giving rise to optimism that the second half of the year would improve. But August and September didn't continue the momentum. The year peaked in October, which saw 251 mid-market transactions close. And the last two months of the year were respectable, but far from spectacular.

There were some bright spots. Real estate topped the list of most active sectors with 369 completed transactions. The mid-market deals in the industry included TPG Capital's $108.6 million investment in Chinese real estate developer Xinyuan Real Estate Co. Ltd. (NYSE: XIN) in September. Many deals featured residences aimed at seniors, taking advantage of the country's aging population. American Realty Capital Healthcare Trust Inc., Griffin Real Estate Management and Health Care REIT Inc. (NYSE: HCN) continued to be land-grabbers in the space.

Software, a sub-sector of technology, media and telecommunications, also saw a lot of activity, with 110 completed middle-market transactions. In some cases, the targets found suitors overseas: Aurora Networks Inc., a Santa Clara, Calif.- based company, agreed to be sold to Pace plc of Saltaire, England, for $323 million in October. Day 1 Studios LLC, a Chicago-based software developer, agreed to be bought by Wargaming.net of Belarus, Ukraine, for $20 million in February. Another sub-sector that flourished was the hotel and casino industry. With 99 deals closed, middle-market companies are expanding into new territorities, such as New York, Texas, Illinois and Florida, as more states consider gaming expansion proposals.

Overall, the fourth quarter proved the most active one of 2013, delivering 638 completed deals. Ever optimistic, dealmakers predict the momentum will continue and that middle-market M&A will thrive in 2014.

Editor's Note:

To measure activity in the middle market, Mergers & Acquisitions looks at transactions that fulfill several requirements: Deals must have a value of roughly $1 billion or less; they must be completed (not just announced) within the timeframe designated; and they must include at least one U.S. company in the role of buyer and/or seller.

Excluded from our charts are: recapitalizations; self-tenders; ex-change offers; repurchases; stake purchases; and transactions with undisclosed values buyers or sellers. We have applied this criteria to all charts in this story, including the league tables that rank investment banks and law firms. Our data provider is Thomson Reuters.

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